Prime Minister reviews rupee slide with key advisers

With the Indian rupee in a free-fall mode in recent days against the dollar, Prime Minister Manmohan Singh, on Friday, held a review meeting with Reserve Bank of India Governor D. Subbarao and two other key advisers to discuss the overall economic environment and devise ways and means of arresting the sharp slide in the value of the currency as the unprecedented depreciation has been playing havoc with the country's import bill.

At the meeting, which was attended by Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan and Planning Commission Deputy Chairman Montek Singh Ahluwalia, among the strategic measures that came up for discussion was to ease the bulk demand for dollars in the open market by making the U.S. greenback available to oil importers directly from the apex bank.

“We met the Prime Minister. We had discussions on what actions can be taken [to arrest the rupee fall]. We also discussed about the overall situation of the economy,” said Dr. Rangarajan after the meeting who, like Dr. Singh, has been head of the apex bank in earlier years.

According to analysts, the high-level meeting is a definite pointer to a RBI package of measures in the pipeline that will enable the rupee to hold its own against the dollar on a longer-term basis. Having declined to an all-time low of 56.38 against the dollar during intra-day trade on Thursday, the rupee ended the day higher at 55.65 and appreciated further by 27 paise at 55.37, on Friday, following fresh unloading of the U.S. currency by banks and exporters, as directed by the apex bank. Dr. Rangarajan pointed out that the sharp fall in rupee value was owing to a mismatch between the country's current account deficit (CAD) and capital flows and since the money market tended to over-react in such situations, the RBI's job in the short-term would be to intervene to ‘curb speculation'. The medium-term strategy, he said, would be to ‘reduce the CAD' and the government's policies “should be pro-active in increasing the capital flows.” Alongside, reiterating what he had suggested earlier as a strategy to stem the rupee slide, Dr. Rangarajan said: “One of the options is that the bulk demand for dollar of the oil companies be met directly by the RBI. It was done during my time also. But the proposal should be examined carefully.”